Dollar Nosedives After Inflation Disappoints For 5th Month In A Row

Following 'disappointing' (to some) producer price data, consumer prices missed expectations for the 5th month in a row with a mere 0.1% rise MoM (0.2% exp). Year-over-year growth in core consumer prices also slowed for the 7th straight month dropping to just 1.7% - the slowest since Jan 2015. Amid this dismal report, there is a silver lining for Americans, the cost of shelter rose just 0.1% - the smallest rise since March.


The breakdown by components

Source: @SmithEconomics

The index for all items less food and energy increased 0.1 percent in July. The shelter index rose 0.1 percent in July, its smallest increase since March. The rent index increased 0.2 percent, while the index for owners' equivalent rent rose 0.3 percent. However, the AriBNB effect keeps crushing hotels - the index for lodging away from home fell sharply, declining 4.2 percent.

The medical care index rose 0.4 percent in July, the same increase as in June. The index for prescription drugs continued to rise, increasing 1.3 percent in July after rising 1.0 percent in June. The index for hospital services rose 0.5 percent, and the physicians' services index advanced 0.1 percent.

The recreation index rose 0.3 percent in July, its largest increase since February. The index for apparel rose 0.3 percent after declining in each of the past four months. The index for airline fares also turned up in July, rising 0.7 percent following 3 months of declines. The index for motor vehicle insurance continued to increase, rising 0.3 percent.

The dollar is disappointed:

In his preview of a potential 5th consecutive CPI miss, RBC's Charlie McElligott has this to day:

US CPI (core) was always going to be the headliner of the week, as the 2.5 year global macro focus has continued to center on the debate around ‘disinflation / reflation’ range-trading around it.   Last week’s excitement around ISM Prices Paid and AHE’s beats (and 5y breakevens crossing north of 1.70 cleanly) however has been tempered by the disappointing PPI print yesterday (shouldn’t really fixate on that, as Tom Porcelli laid-out yday).  


In light of the recent market wobble though, I can now see this going two very different routes.  An ‘inline to better’ number (.2) could definitely arrest the ‘sentiment drain’ in global risk markets right now, with long-awaited signs of US inflation and data being ‘back on track’ as a catalyst for higher Dollar & rates (real yields having collapsed recently).  That said however, with regards to the current US exporter / mega-cap Tech / FAANG ‘boon’ that has been the Dollar coming unglued, it might actually add further pressure to these areas which are obviously being ‘stressed’ (on account of positioning) ‘as is’ IF we were to see a strong counter-trend rally in Dollar kick-off.


Conversely, another miss in core CPI would REALLY muck-up the picture for the Fed and rates, with the potential for the market to try and price a Dec Fed hike out entirely, along with increased expectations for the Fed to drop their ‘dot plot.’  This would likely be the next driver of leg-lower in USD and with it, open up the potential for rates to revisit 2.0% level, especially with the potential scope for $/Y to travel to 105 and what that would do for Japanese ‘mechanical’ buying (and similar Yuan / Chinese FX reserve manager flows too).  In that case, you are likely to see a return to the ‘slow-flation’ positioning narrative—long secular growth, long low risk (‘duration sensitives’) against short cyclicals…sigh.  And I also think that if this were to occur and the Euro strengthened significantly again, you are going to see folks girded to short the EU exporter-centric DAX further.


Longer-term, that will probably be a ‘fade,’ but we’ll cross that bridge when we get there.


spastic_colon Fri, 08/11/2017 - 08:46 Permalink

the outright lies keep piling up.......if POTUS doesnt see or address this we are screwed.....i dont know anyone who believes the inflation least anyone who is paying attention.

silverer FreeShitter Fri, 08/11/2017 - 08:57 Permalink

You know as well as I do that no matter who you put in office, this is beyond repair. The spin down has been going on for years. How can you dig out of a 20 trillion dollar hole with only half the country working and no increase in productivity? Now it's simply every man for himself, and as far as president goes, you either like your cheerleader on the way down or you don't, but you ARE going down.

In reply to by FreeShitter

847328_3527 I am Jobe Fri, 08/11/2017 - 09:01 Permalink

Christmas.... At least we are allowed to say "Christmas" again and put up trees and angels and stuff. It was depressing to have the muzlim president ban Christmas stuff. Even malls pandered to Soweeto Hussein and the muzlims and failed to put up happy Christmas stuff.It's no wonder their sales plunged as stores sough to pander to muzlims. And then you have target and jcpennys with their transgender and LGBT policies and bathrooms. No wonder parents kept their families at home and shopped online.oh yeah, then there's bin Bama and his pet wookie pushing kwanza candles and dolls....  

In reply to by I am Jobe

ejmoosa Fri, 08/11/2017 - 08:55 Permalink

There are two components to what the FRB calls inflation:  Declining value of the dollar and "supply and demand".Add those two together and you get "inflation" as reported".So if the declining value of the dollar creates 4.2% inflation and falling demand creates -4.1% inflation, we get these confusing 0.1% reports....Demand in total is falling.

GodHelpAmerica (not verified) Fri, 08/11/2017 - 09:08 Permalink

Lmao look at these scum try to cap gold at 1290. Four weeks ago it was the 200 dma; three weeks ago it was 1260; two weeks ago it was 1270; last week it was 1280; now this week it's 1290.

It's apparent where these lines are set up bc gold has had a near perfect inverse trading pattern to the dxy, but once it approaches their arbitrary line, the correlation breaks down until the physical market overwhelms them and they then reset the line higher and the process begins again but at a higher level.

rejected Fri, 08/11/2017 - 09:59 Permalink

Soooo if I understand this correctly, we need more (inflation) debasement of our money to make it more valuable.Well, this is the 21st century and all.....